XO Communications 2010 Annual Report Download - page 27

Our success is highly dependent on our ability to retain and recruit talented employees.
We depend on the performance of our executive officers and key sales, engineering, and operations
personnel, many of whom have significant experience in the telecommunications industry. If we were to
experience the loss of a significant number of our professionals in the future, it could adversely affect our
results of operations, including our ability to continue performing certain functions and to complete certain
initiatives in accordance with our existing budgets and operating plans. To attract and retain the number of
employees we need to grow our business, we may have to increase our compensation levels or incur higher
recruiting costs in the future.
We have substantial business relationships with several large telecommunications carriers, and some of our
customer agreements may not continue due to financial difficulty, acquisitions, non-renewal, or other
factors, which could materially and adversely affect our revenue and results of operations.
We have substantial business relationships with several large telecommunications carriers for whom we
provide wireless, local and long distance transport services. However, as of December 31, 2010, we did not
have any individual customers who generated more than ten percent of our total revenue. The highly
competitive environment and the industry consolidation in the long distance and wireless markets has
challenged the financial condition and growth prospects of some of our carrier customers, and has caused such
carrier customers to optimize the telecommunications capacity that they use among competing
telecommunications services providers’ networks, including ours. Replacing this revenue may be difficult
because individual enterprise and small to medium business customers tend to place smaller service orders
than our larger carrier customers. In addition, pricing pressure on services that we sell to our carrier customers
may challenge our ability to grow revenue from carrier customers. As a result, if our larger carrier customers
terminate the services they receive from us, our revenues and results of operations could be materially and
adversely affected.
We may not be able to maintain favorable terms for our leased fiber or maintenance agreements.
We possess rights to the fiber that is included in our networks, particularly in our inter-city network,
through long-term leases or IRU agreements. Additionally, we rely on third parties, including other carriers, to
perform certain maintenance and repair network services for us. An inability to continue these relationships
and to renew these agreements under similar terms, or to find suitable alternative solutions, could negatively
impact our network and increase related costs and expenses, make it more difficult to provide competitively-
priced services to our customers, increase our capital and operating expense outlays and, ultimately, adversely
affect our operating results.
Technological advances and regulatory changes are eroding traditional barriers between formerly distinct
telecommunications markets, which could increase the competition we face and put downward pressure on
prices, which could impair our results.
New technologies and regulatory changes are blurring the distinctions between traditional and emerging
telecommunications markets. Additionally, some of our biggest competitors have been freed from certain
regulatory requirements that required such competitors to make certain elements of their networks available to
CLECs on just, reasonable, and non-discriminatory rates, terms and conditions. Furthermore, the increasing
importance of data services has focused the attention of most telecommunications companies on this growing
sector. This increased competition could impair our prospects, put downward pressure on prices and adversely
affect our operating results.
We are subject to comprehensive and continually evolving regulation, which could increase our costs and
adversely affect our ability to implement our business plan.
XO Holdings and some of our services and facilities are regulated by the FCC, states, local zoning
authorities, and other governmental entities in a regulatory environment that is becoming more challenging for
CLECs. These regulators routinely conduct rulemaking proceedings and issue interpretations of existing rules.
These regulatory proceedings could impose additional obligations on us, give rights to competitors, increase
our costs, and otherwise adversely affect our ability to implement our business plan. Attempts to limit the
basic competitive framework of the Telecom Act could be detrimental to the successful implementation of our
business plan.
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